Increased KKR offer for Treasury Wine could spark bidding war

Australia's Treasury Wine Estates is opening its books to Kohlberg Kravis Roberts after the private equity giant hiked its takeover offer to $3.15 billion (€2.35 billion), raising the prospect of a bidding war for the world's second-largest winemaker.

Treasury, which rejected a $2.9 billion unsolicited bid from KKR in April, said the 10.6 per cent rise in the offer price meant it was now “in the interests of shareholders to engage further”.

Asia's growing appetite for wine, the value of Treasury's Penfolds label and an ongoing restructuring are helping turn perceptions of the company's prospects around after a horror 2013 saw profits slump 38 per cent in the six months to February.

China’s Bright Food Group, France’s Pernod Ricard and the world’s biggest wine maker, US-based Constellation Brands, have all been mooted as potential buyers of Treasury.

"Absolutely there are [rival bidders], they've now kind of set a starting point for the price," said Shannon Rivkin, director at Rivkin Securities. "This is going to be the point now where anyone who has any interest will be able to have a look at the books as well."

Due diligence

Treasury, which also owns the Wolf Blass and Beringer brands, stressed it was providing KKR and new bidding partner Rhone Capital with "non-exclusive" access to its books for due diligence and that there was no certainty any offer would be forthcoming.

Treasury rejected KKR’s 4.70 Australian dollar (€3.27) per share bid as too low in May after KKR began approaching investors directly.

The new A$5.20 offer is a 5 per cent premium to Treasury’s A$4.95 share price close on Friday. Treasury shares were up about 4 per cent at A$5.15 yesterday.

If a firm offer did result, Treasury said it would assess whether it provided superior value to plans the company already had to cut costs and improve its performance, which included separating its Australian luxury and mass prestige portfolio from its lower value commercial brand portfolio.

Look at the books

Mr Rivkin cautioned that a closer look at the books could also raise concerns – and possibly a lower price – pointing to the recent takeover of struggling food maker Goodman Fielder by Malaysian billionaire Robert Kuok’s Wilmar International.

Wilmar convinced Goodman to accept a lower offer after a look at the books resulted in the Australasian firm warning of a massive impairment charge.

“I think this is a starting bid, once they have a look through, if there are any issues there that the market’s not aware of they could still very easily walk away,” Mr Rivkin said of the KKR offer for Treasury.

Treasury – which posted sales worth A$1.7 billion in the 2013 financial year – has tried to stave off takeovers by cutting costs and installing new chief executive Michael Clarke in April. Former chief executive David Dearie was sacked in September last year after presiding over a A$160 million charge due to the destruction of thousands of gallons of cheap wine exported to the United States. – Reuters